My talk today is about the economy. It’s one of three that I’ll be giving this week as New Zealanders close in on the polls. This particular one focuses on the Emissions Trading Scheme, one of the most damaging policy choices that New Zealand has made in recent years.

This is an adopted article.

New Zealand’s hyperactive adoption of the world’s only all-sectors-all-gases Emissions Trading Scheme will not save us money on international obligations, because after the Kyoto Protocol expires next year there will not be any such obligations. It will not affect the global climate because New Zealand’s emissions form an utterly trivial fraction of global emissions 1. It will not set an example to the world: if anything it will show the world that trying to lead on climate change policy is counterproductive. It might improve “Brand New Zealand,” but only at an unacceptable cost.

First, though, let me set some context.

Each economy speech this week fits into the following background. New Zealand is stagnating, and in a global environment where countries compete fiercely for people, investment and jobs, we must run to stand still.

We already start from a serious handicap. We might be in a relatively good position compared with some of Europe’s basket cases, and our economic policy environment is not too bad if we compare ourselves only to them.

The problem is that we’re not really competing with them for investment and jobs. We’re competing with our neighbours across the ditch, and you’d have to say things are not going well.

As best it can be estimated, Australians were on average 35 per cent better off than New Zealanders were in 2008, taking into account cost of living differences. Today, that gap is nearer 40 per cent.

It’s no accident, then, that Australia attracted nearly 300,000 people net from our shores in the last decade. It’s no comfort to learn that on current trends we expect them to lure away a further 400,000 in the coming fifteen years.

You can see that we are behind on incomes, we’re losing people, and we face very difficult choices around taxes and spending. We need to seriously grow the pie, seriously soon.

Success over the coming decades will require making hard choices with our wits about us. Failure will require only that we carry on along our current path.

If we fail, we should expect to see the income gap with Australia head for 50 per cent and beyond, and New Zealand as we currently conceive it will no longer exist. Goodbye to the first world country with first world public services, first world jobs and first world opportunity.

That is the backdrop against which all policy decisions should be made. We should ask ourselves, in each case: will this policy choice make the economy more efficient and more productive so that we can close the income gap with the countries we like to compare ourselves with?

It’s actually not a choice. If we try to choose bigger government over economic efficiency, we will end up with neither as our most productive people leave and those remaining find their golden geese have flown the coop.

With that backdrop in mind, let us consider the arguments for the Emissions Trading Scheme.

The first and most common is that our Kyoto commitments require that we, as a country, pay anyway. If that were true, then the people who get the most benefit from carbon emissions should pay.

But nobody seriously believes that there will be a binding international agreement after Kyoto expires at the end of next year. No agreement, no liability.

Nick Smith is on record in Parliament saying he does not believe there will be one. The British Government has said they don’t believe there will be such an agreement this side of 2020. The Japanese, Canadians and Australians do not intend to join a new Kyoto agreement. India and China are not required to make cuts under the current Kyoto Protocol. The United States is not in the current Protocol and certainly won’t be joining a new one as other countries leave the old one. No agreement, no liability.

So if we do not need an Emissions Trading Scheme to fulfil our current liabilities, what other reasons might there be?

The most obvious is that we want to mitigate climate change. I’m not going to get into an argument about climate science. Let us proceed from here using the assumptions of the most shrill believers in anthropogenic climate change. Let us assume that climate change is a real threat to our way of life, that it is primarily caused by us humans, and that we should be doing everything in our power to stop it.

Even on that assumption it is pointless for New Zealand to have an ETS. New Zealand produces 0.2 per cent of global emissions. There is no way that New Zealand could ever expect to have a measurable effect on climate change if we shut down the entire country tomorrow, let alone making the fractional changes that the ETS might achieve.

So it’s not about directly affecting the climate. We simply cannot do that no matter how hard we try.

We might believe that it’s about pulling our weight, doing our fair share as good international citizens. After all, we do like to think of ourselves as good global citizens.

But a “fair share” doesn’t mean “the lion’s share”. Why are we leading the world?

The Ministry for the Environment has a page of examples supposed to show that we’re not alone, but actually shows no other country is going as far or as fast as we are.

The European Union has a highly selective scheme that includes only so-called “major installations” in some industries and is generally riddled with exemptions.

The Japanese and Swiss have voluntary schemes.

The United States never even ratified the Kyoto Protocol and has only a few weak regional trading schemes within its borders.

There are no examples from the entire continents of South America and Asia, or the Subcontinent.

The Ministry has not updated their website to reflect the recent passing of Australia’s Clean Energy Act, but if they did they would show another country with a far less comprehensive scheme than ours. The Australian scheme rewards rather than punishes farmers. It does not include private transport as ours does. And who knows whether it will survive Australia’s next election, when a popular Opposition has “pledged in blood” to repeal it?

Some might still say shame on them. It is those other recalcitrant countries who have got it wrong while we are on the moral high ground. The real lesson we will offer the world is that going too far and too fast on climate policy drives industry, jobs and investment away from our shores.

We will drive industry to places with worse environmental standards than ours, hurting our own economy and the environment simultaneously. It seems unlikely that many countries will be falling over themselves to follow such an example.

Finally, some will argue that we need an ETS to shore up “Brand New Zealand.” Being aggressive about climate change, the argument goes, will make our exports, including tourism, more attractive to foreigners.

The great difficulty here is that we don’t really know how much foreign customers actually value dealing with a country that has a comprehensive ETS. Considering they haven’t voted for them in their own countries, we might surmise that the answer is: not much.

The truth is that some customers for some of our products will pay more for the Climate Friendly brand, and others won’t. A much more sensible way of marketing to climate sensitive customers would be to let our export and tourist industries get on with it.

If an airline or a farmer or a manufacturer wants to pass on the additional cost of carbon offsets to their customers, nothing is stopping them. Some businesses already do this. We have many tourist operators who offer low carbon holidays in New Zealand. Why should the entire economy be implicated in their decision?

There is no good reason for the ETS. It doesn’t help with our international obligations, because after next year we won’t have any.

It doesn’t change the global climate, because four million out of seven billion people simply can’t do that.

It doesn’t show moral leadership, it shows the cost of self-defeating indulgence.

It might make us popular at international conferences, but at enormous expense to all New Zealanders.

And what exactly is that expense?

The Ministry for the Environment says it will be only $167 for the average household. That’s less than 50 cents per day. Who knew that saving the world was so cheap?

It isn’t.

The ETS is effectively a tax on energy, and our economy runs on energy. The tax is collected from electricity, oil and gas companies and therefore goes into their costs. Those costs go into all transport, all raw materials production, wholesaling, retailing, logistics, financing, etc. In Australia, they called it “a great big new tax on everything”.

Next year, ETS levies will be collected on about 23 million tonnes of CO2. At $25 per tonne, that’s nearly $600 million. Politicians trying to sell the scheme will do what politicians trying to sell expensive policies always do. They’ll claim that some of the cost will fall on business, some on foreign buyers of our exports, and some on the guy down the street. Basically, on anybody but the voter they’re talking to at the time.

The truth is that all costs eventually fall on workers, consumers and investors — there aren’t any other types of people in New Zealand who can pay the costs, and all of us are at least one of those — many of us all three. The cost, folks, will ultimately fall on your household.

For a household of four, we’d expect the cost to be around $600 per year. Pensioners on fixed incomes will be particularly vulnerable.

But that’s the good news, by comparison.

The bad news is that the cost is set to double because over the next three years the carbon price will double.

Costs will increase by a third in 2013, another third in 2014 and a further third in 2015. At that point, a household of four will be paying $1200 per annum – $100 each month – for the privilege of having an ETS.

Compare all this with Australia, where their Government has just enacted tax cuts and grants of almost $1800 per household to compensate them for the costs they will incur under the new carbon tax. Our Government is offering no compensation for the same costs hitting New Zealanders. And for good reason – the taxpayers simply can’t afford it.

Then the news gets even worse. What I’ve described so far is what we have before the biological emissions produced by agriculture are brought into the ETS. Labour threatens to do so by 2013, and National by 2015.

Labour’s “Fiscal Strategy” document claims that it will be taking $218 million per year. That’s a very large chunk of the net income of farmers. New Zealand farmers cannot recover these new costs from export markets, so it comes out of their own pockets. Such a massive imposition by the ETS would lead to a wave of farm foreclosures, especially amongst those younger farmers with high debt levels. And these are the exporters we rely upon to generate the foreign dollars we need to buy our imports and service our international debts.

We can only hope that Labour’s ETS figures are wildly astray, like so many of their other fiscal calculations.

The Emissions Trading Scheme is not strictly a tax in the sense that the money goes through government coffers. It is, however, a government-imposed cost on workers and consumers that benefits specific groups.

The question is, who gets the money?

The most obvious and immediate beneficiaries are the foresters who can sell carbon credits for growing trees. If it was only they who benefit we might say that the following has happened:

New Zealand has chosen to take $100 per month out of the average household of four in order to plant more trees and perhaps allow forestry companies to make windfall profits out of this new market.

However, once again, it gets worse. It’s not guaranteed that New Zealand emitters will fulfil their obligations by buying credits off New Zealand foresters. This is where the real insanity sets in.

It is quite possible, even likely, that emitters will find it cheaper to buy credits from countries with more potential to reduce emissions by adopting better technology. Ironically, these tend to be developing countries that don’t have much technology at the moment. Countries like China whose emissions are growing faster than any other country’s, and who are not bound to reduce their emissions even by the current Kyoto agreement.

We can now amend our story:

New Zealand will soon choose to take $100 per month out of the average family of four and give some of it to foresters and the rest to developing countries that are making little other effort to reduce their emissions.

As I said in the beginning of this speech, New Zealand is currently fighting desperately to remain a first-world country for the next generation.

If we are to win this fight, we cannot afford poor policy choices, let alone choices that take large amounts of money out of New Zealand household budgets in order to achieve nothing but a fillip to the forestry industry and the despatch of more money overseas.

In any future government, the ACT Party will make it a priority to stop this madness. How much power ACT has after this Saturday is up to you, the voter, this week.

However it’s my job to tell you what ACT believes, and what a vote for ACT means.

Our first priority will be to take biological emissions, meaning charges on methane belched from sheep and cows, out of the ETS. Permanently. Rather than National’s approach of stalling the inclusion of biological emissions, we would give farmers assured protection from the ETS by having biological emissions out of the legislation altogether.

This would be a major step in bringing our ETS at least into line with Australia’s Clean Energy Act, and would safeguard the viability of many farms in New Zealand.

The inclusion of farmers offends the whole principle of targeting increases in emissions. Greenhouse gases are increased only when a herd or flock of livestock is being established. Maintenance of an established farm causes no net change to the composition of the atmosphere. Our farms are not only long-established, our livestock numbers are decreasing, and net biological emissions per unit of output have fallen steadily since 1990.

Excluding livestock emissions would be a major step in bringing our ETS at least into line with Europe and Australia. No other country has even considered taxing food production at a time when the world’s greatest challenge is to feed 9 billion people by 2040.

Our second priority would be to ensure that the coming price rise in Carbon Units is delayed indefinitely. The current $600 cost for a household of four is a major impediment for the recovery of our economy. Doubling it would be a death blow. ACT will push to keep the carbon obligations frozen where they are now.

Our final priority will be to have the ETS scrapped completely, at least for the time being. It should be held on ice until the majority of our key trading partners adopt schemes which are equally draconian and impose comparable costs on their citizens. This is clearly a very long way off.

ACT will push to bring New Zealand back into line with the rest of the world, removing the bureaucracy and cost from our entire economy, and boosting our economic recovery.

Try putting it another way. ACT has a policy that will put $100 per month into every household, and remove the threat to the viability of farming by 2014. It’s simple: Scrap the ETS.

9 Thoughts on “Brash trash of ETS”

“Costs will increase by a third in 2013, another third in 2014 and a further third in 2015. At that point, a household of four will be paying $1200 per annum – $100 each month – for the privilege of having an ETS.”

He is a bit light here!

The Units to be surrendered under the ETS in 2011-12 is forecast at 23.3MT. At $25 per Unit, that amounts to $582m.

But then the vendor of electricity, petrol, oil, gas, diesel, or whatever has to add a margin. And that cost passes through transport operators, wholesalers and retailers, etc, all of whom also need a margin. The Reserve Bank calculates the “first round effects” at consumer level will be 1.5 times the amount paid out at energy company level.

So, the total cost to end consumers this year will be $873m. And lets not forget GST – which consumers can’t draw back. That takes the after-tax cost to end consumers up to just over a billion dollars ($1,004m) in the current year.

That equates to $934 pa for a family of four.

These calculations follow Government practice of using the statutory option price of $25 per Unit, ignoring the recent crash in world carbon prices. But they also ignore the huge additional cost of the windfall profits which accrue to non-fossil-fuel electricity generators; and the cost to taxpayers of compensating beneficiaries and Working for Families recipients for the CPI increases driven by the ETS.

Brash’s mindset is obviously conditioned by the “consensus” that CO2 emissions from industrialized countries (e.g. his reference to China) are actually problematic. I bet he hasn’t looked at plots of global CO2 fluxes to see where the major fluxes actually originate e.g NOAA surface launched or JAXA satellite. If he had and seen that it’s the equatorial under-developed countries that are the largest net emitters I think his speech would contain some additional invective – somebody tell him.

I see George Laking has continued his anti-Act NZ Herald diatribe: Epsom and climate change at Hot Topic (Vidal’s voyage post):-

The following was one of his later comments under his “Epsom and climate change” opinion piece:-

George Laking (Devonport)
10:25 AM Tuesday, 22 Nov 2011

Borealis you don’t have any effective rebuttal for the substance of the article, so you complain that there isn’t enough scientific notation. You describe my opinions as “unscientific” and you might have a point. Global Warming has gone way beyond science, we are now talking about morality. You and your kind have cynically and immorally abused science to further your short term interests.

There is a kernel of science that everyone can look up, it is NIWA’s “Report on the Review of NIWA’s Seven Station Series” available on NIWA’s website, and it shows how temperature has risen 0.9degC in this country over the last century.

If you take the raw temperature recordings alone (like ACT, or to be precise, Richard Treadgold did), you won’t see a temperature rise. But that is because the readings have to be corrected for changes in site location, exposure, and instrumentation. My own training in science has made me alert to and familiar with the need to prepare raw data for analysis. Treadgold overlooked this and so ACT constructed a whole court case on the most abysmal scientific howler.

If Laking is the Doctor I think I would rather have the disease. Given that he’s a medical oncologist: (treatment primarily with drugs, e.g. chemotherapy) not a radiation oncologist probably explains why he doesn’t know squat about AGW. Pity Laking didn’t pursue the radiation sub-specialty or he might have seen through the bogus backradiation heating notion.

And please Richard T (or NZCSC), acquaint this idiot with the facts of NZCSC v NIWA and the statistical audit of the NZ temperature series by NZCSC.

I did add my 2c to the Herald article, suggesting that the medical profession should stick to just that.

I fail to see how Laking’s suggestions of massive emissions reductions in NZ will not cause serious harm to the health of the public.

Sometimes, I like to use the analogy of weight loss. I may suggest to someone who is overweight that losing a bit of weight is healthy and achievable. However, if you are already scrawny, then losing 40% of your body weight will probably kill you.

NZ is that scrawny kid. We are already over 75% renewable energy, and our pasture management is amongst the best in the world.
If we reduce our emissions by 50% in less than 10 years, as Laking suggests, we will be like that anorexic teenager who fades out of existence.

Yes, Skeptical Science seems to be the world’s foremost climate science authority and referral of first resort where all climate truth is magically revealed by the revered John Cook – no scepticism needed (or tolerated) and doctrine is infallible.

Hey, thanks guys. I’ve just taken time to check out these comments of yours pointing out Laking’s attack on us. Barry just drew my attention to it as well. I’m a bit miffed and I’m doing something about it. The oncologist is clearly taking less care over his religious beliefs than over his profession.